Housing continues to steam ahead as the "Big Engine That Could."

For the second consecutive month, a leading consumer index points to housing as the fuel for accelerated consumer spending.

However, the index now warns that rising gasoline prices could put the brakes on buying.

The pace of consumer spending has more than doubled since last year when it rose two percent. This year it's up four percent, according to Deloitte Research's "Leading Index of Consumer Spending."

"While surging home values will fuel consumer spending for the next several months, including purchases of home-related items like furniture, consumer electronics and home improvements, rising gas prices may take the purchasing power of consumers away from retailers," says Carl Steidtmann, Deloitte Research's chief economist and author of the monthly index.

"While consumers continue to spend, their pool of cash may decrease due to rising gas prices," he added.

Economic and financial experts say, the money consumers spend more and more often comes from increased home values that generate greater stashes of equity.

Equity is the difference between a home's value and outstanding loans against the home. For example, a home valued at $500,000 with mortgages totaling $400,000 has $100,000 in equity against most or all of which the owner can borrow.

As home values grow so does the equity slice of the pie and home values are moving at more than three times the rate of inflation -- even after slowing down from previous years.

Nationwide, home prices are rising at the rate of nearly 8 percent a year according to the 2004 first quarter report from the Office of Federal Housing Enterprise Oversight (OFHEO).

Home prices are getting a boost from the increased demand of buyers looking to get in the door before higher interest rates price them out of the market.

The biggest price increases during the past year occurred in Hawaii, Nevada, Rhode Island, the District of Columbia, and California. The smallest increases occurred in Utah, Texas, Indiana, Colorado, and Alabama.

For the first quarter of 2004, six states -- Vermont, Alaska, North Dakota, South Dakota, Iowa, and Nebraska -- experienced negative quarterly growth. That didn't happen to any states in the fourth quarter in 2003, indicating some regional weaknesses in the housing market.

New York City's investment bank and financial investment firm Keefe, Bruyette and Woods said the volume of all real estate and home equity loans will rise by about 6.7 percent this year, but Hackettstown, NJ-based SMR, a business research firm that studies consumer financial services markets and the companies that participate in them, says home equity loans have much more room for growth.

SMR projects the home equity loan market to move from "good to spectacular" in 2004 and says growth should spurt by more than 15 percent and perhaps by as much as 20 percent.

SMR says along with the boost rising interest rates are giving home values, higher rates will also render refinancing less appealing, leaving homeowners with the equity loan alternative.

In addition, financial advisers and planners are recommending a reversal of an old truism not to touch home equity until there is an emergency. Advisers say the problem with that approach is that if an emergency hits when you are out of work, with no visible means of support, it's a lot more difficult to qualify for home equity funds. So homeowners still at risk for job loss are cashing in their equity now and sitting on it -- just in case.

Yet another small boost for the home equity market could come in a few months from the Neighborhood Reinvestment Corp.'s (also know as NeighborWorks.org) work with housing finance giants Fannie Mae and Freddie Mac. NRC wants to create a secondary sub-prime market for home equity and repair loans made in low-income areas, NRC Board Chairman Edward Gramlich told reporters last week.

"We're trying to promote low-income housing in this way," said Gramlich.

It's not surprising then, that the Deloitte index is showing a run on equity money.

Deloitte's index, which tracks consumer cash flow as an indicator of future consumer spending, is comprised of four components -- tax burden, initial unemployment claims, real wages and real home prices. The index rose to an all-time high of 5.72 percent in April, up from 5.56 percent in March.

Highlights of the index include:

• Unemployment claims continue to decrease, indicating steady improvement in the job market.

• Spending generally precedes an increase in employment. Businesses respond to growing consumer demand by increasing hiring.

• Following a savings rate increase in April, personal income has risen twice as fast as spending, pointing to higher future spending.

Published: June 9, 2004

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.